Diverse political interests converged Thursday to support Democratic Comptroller Kevin Lembo’s proposal to lend stability to the state’s rainy day fund.
Robert Zahradnik of the Pew Charitable Trust and Carol Platt Liebau of the Yankee Institute for Public Policy both agreed that a healthy budget reserve fund would mean fewer tax increases.
Lembo’s proposal takes what he has determined to be the two most volatile revenue streams — the corporation tax and portions of the personal income tax — and applies a formula that requires automatic deposits into the budget reserve fund whenever revenue exceeds historic norms. It also increases the cap on the fund from 10 percent to 15 percent of net general fund appropriations.
He said the deposit formula would make the state more capable of managing “the swings in revenue collections by storing money away in good economic times so that it is available when the economy slumps.”
Lembo said reserves during the 2002-04 and 2009-11 recessions fell far short of the amount necessary to fill serious budget holes. He cited estimates showing that both shortfalls could have been erased if his current proposal had been in place.
The volatility in the budget puts politicians on a roller coaster ride that doesn’t end, according to Lembo.
“During those boom cycles, during the up economic times, we have made promises and committed to programs that are frankly unaffordable in the down economic times. We make promises through the boom and then we cut and raise taxes through the bust. And then we see another recovery and we think it will go on forever and we continue to make promises and then it happens again,” Lembo said.
Zahradnik told lawmakers that Connecticut is one of 21 states that base their contributions to the reserve fund on end-of-year surpluses. “Because surpluses are determined near the end of the fiscal year, deposits made under rules like Connecticut’s are often the last — and frequently the lowest — priority in the budget process,” he said.
There are 13 states that make their rainy day fund deposits according to fluctuations in revenue, Zahradnik said. He said deposits to the reserve fund in Massachusetts are triggered when capital gains collections exceed $1 billion. In California, deposits kick in when capital gains revenue exceeds 8 percent of the general fund revenue.
A vote by three-fifths of the Appropriations and Finance Committees is required if lawmakers want to stop any of the automatic transfers.
Lembo said the rigid structure of the plan takes away some of the flexibility lawmakers have in dealing with the budget, but it enhances the ability of municipal governments and nonprofit organizations to plan their own budgets.
Predictable revenue is easier to plan a budget around, he said.
Sen. John Fonfara, D-Hartford, acknowledged the bill as the most important issue the committee will address this session.
He characterized the issue as one that is bigger than either party and bigger than politicians themselves; instead, it’s about sustaining programs and services that people believe in.
“We don’t do very well when you have a two-year election cycle and you break promises,” Fonfara said.
A public hearing on Lembo’s proposal drew support from social service providers, labor unions, and individuals who stand to lose the most to a budget shortfall that advocates say wouldn’t be there if such a bill had been passed sooner.
